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--Gitman2002.CH08.314-368.CTP 7/19/01 12:19 PM Page 314CHAPTER 8STOCKVALUATION ANDINVESTMENTDECISIONSL EARNING G OALSAfter studying this chapter, youshould be able to:LG 1Explain the role that acompany’s future plays in the stockvaluation process and develop a forecast of a stock’s expected cash flow.Discuss the concepts ofintrinsic value and required rates ofreturn, and note how they are used.LG 2LG 3Determine the underlyingvalue of a stock using the dividendvaluation model, as well as otherpresent value– and price/earnings–based stock valuation models.LG 4Gain a basic appreciationof the procedures used to valuedifferent types of stocks, fromtraditional dividend-paying sharesto new-economy stocks with theirextreme price/earnings ratios.LG 5Describe the key attributesof technical analysis, including somepopular measures and proceduresused to assess the market.Discuss the idea of randomwalks and efficient markets and notethe challenges these theories holdfor the stock valuation process.LG 6314ech stocks have been at the forefront of stock market news thepast few years. Often this sector, rather than blue-chipindustrials, drives the market—both up and down. TakeQualcomm, for example; a company that is a leading developerand supplier of digital wireless communications products and services.It pioneered Code Division Multiple Access (CDMA) technology, astandard for the wireless communications industry. Investors inQualcomm stock have experienced a roller coaster ride recently. Thefirm’s 1999 stock price started at 6.48 and soared steadily upward toend the year when it hits 176.13—after splitting 2-for-1 in May and4-for-1 in December. This represents an annual return of over 2,600%,the year’s best. The following year was another matter, however. Fearsof slowing growth sent the stock price into free-fall: It plummetedfrom 163.25 to 51.50, before rebounding to 82.19 at year end, fora 53% return. Even after the decline, the stock was still trading at aprice/earnings ratio of about 85 in early January 2001, a substantialpremium over the average P/E of 29 for the S&P 500.Despite Qualcomm’s fluctuating stock price, investors looked withfavor on the company’s earnings growth—94% from 1997 through2000, which far outstripped the S&P 500’s 14%. The companyconsistently met or exceeded quarterly earnings estimates, andanalysts project continued earning growth to 1.26 per share in 2001,an increase of 48% over 2000.What do all these numbers mean in terms of the value ofQualcomm’s stock? This chapter explains how to determine a stock’sintrinsic value by using dividend valuation, dividend-and-earnings,price/earnings, and other models. We also look at how to valuetechnology stocks. Finally, we’ll review the use of technical analysis asa way to assess the state of the market in general.TSources: Adrienne Carter, “The Big Score,” Money Technology 2000, October 15, 2000,p.60; “Morningstar Quicktake Report—Qualcomm” Morningstar.com, downloadedfrom www.morningstar.com, January 15, 2001; and Qualcomm Web site,www.qualcomm.com
--Gitman2002.CH08.314-368.CTP 7/19/01 12:20 PM Page 315CHAPTER 8Valuation:Obtaining aStandard ofPerformanceLG 1LG 2stock valuationthe process by which theunderlying value of a stockis established on the basis of itsforecasted risk and returnperformance.BLIND SPOT—As opticalnetworking companies caughtinvestors’ attention, theirmarket value soared. InSeptember 2000, this hypedrove the value of JDSUniphase to 96 billion, whichmade it the 36th most highlyvalued company in the world.Investors apparently turned ablind eye to the company’sfinancial results for the fiscalyear ended June 30, 2000: Itsrevenues were 1.4 billion andits losses 905 million. Forabout the same total marketcapitalization, you couldtheoretically buy all 11 of thefollowing major companies—the New York Times, Saks FifthAvenue, Georgia Pacific, T.Rowe Price, Delta Airlines,Tiffany & Co., Bear Stearns,FedEx, CVS, Gap, and JohnHancock—with aggregaterevenues of 115 billion and 6.4 billion in profits!Source: Jon Birger, Pablo Galarza,Laura Lallos, and Jeanne Lee, “BestStocks & Funds: Invest the SmartWay to Buy Tech,” Money/Tech 2000,October 15, 2000, pp. 65–66.ISTOCK VALUATION AND INVESTMENT DECISIONS315Obtaining a standard of performance that can be used to judge the investmentmerits of a share of stock is the underlying purpose of stock valuation. Astock’s intrinsic value provides such a standard because it indicates the futurerisk and return performance of a security. The question of whether and towhat extent a stock is under- or overvalued is resolved by comparing its current market price to its intrinsic value. At any given point in time, the price ofa share of common stock depends on investor expectations about the futurebehavior of the security. If the outlook for the company and its stock is good,the price will probably be bid up. If conditions deteriorate, the price of thestock will probably go down. Let’s look now at the single most important issuein the stock valuation process: the future.Valuing a Company and Its FutureThus far, we have examined several aspects of security analysis: economic andindustry analysis, and the historical (company) phase of fundamentalanalysis. It should be clear, however, that it’s not the past that’s important butthe future. The primary reason for looking at past performance is to gaininsight about the future direction of the firm and its profitability. Granted,past performance provides no guarantees about future returns, but it can giveus a good idea of a company’s strengths and weaknesses. For example, it cantell us how well the company’s products have done in the marketplace, howthe company’s fiscal health shapes up, and how management tends to respondto difficult situations. In short, the past can reveal how well the company ispositioned to take advantage of the things that may occur in the future.Because the value of a stock is a function of its future returns, theinvestor’s task is to use available historical data to project key financial variables into the future. In this way, you can assess the future prospects of thecompany and the expected returns from its stock. We are especially interestedin dividends and price behavior.Forecasted Sales and Profits The key to our forecast is, of course, the futurebehavior of the company and the most important aspects to consider in thisregard are the outlook for sales and the trend in the net profit margin. Oneway to develop a sales forecast is to assume that the company will continue toperform as it has in the past and simply extend the historical trend. Forexample, if a firm’s sales have been growing at the rate of 10% per year, thenassume they will continue at that rate. Of course, if there is some evidenceabout the economy, industry, or company that suggests a faster or slower rateof growth, the forecast should be adjusted accordingly. More often than not,this “naive” approach will be about as effective as more complex techniques.Once the sales forecast has been generated, we can shift our attention tothe net profit margin. We want to know what kind of return on sales to expect.A naive estimate can be obtained by simply using the average profit marginthat has prevailed for the past few years. Again, it should be adjusted toaccount for any unusual industry or company developments. For most individual investors, valuable insight about future revenues and earnings can beobtained from industry or company reports put out by brokerage houses, advisory services (e.g., Value Line), the financial media (e.g., Forbes), and from
--Gitman2002.CH08.314-368.CTP 7/19/01 12:20 PM Page 316316PART THREEIINVESTING IN COMMON STOCKH O T L I N K SFor help researching a company, see the following sites. At the ClearStation site, enter astock symbol and click on [Get ation 8.1various investor Web sites. Or, as the accompanying Investing inAction box explains, you might even want to take a look at socalled “whisper forecasts” as a way to get a handle on earningsestimates.Given a satisfactory sales forecast and estimate of thefuture net profit margin, we can combine these two pieces ofinformation to arrive at future earnings.Future after-taxEstimated salesNet profit margin earnings in year tfor year texpected in year tThe “year t” notation in this equation simply denotes a given calendar or fiscalyear in the future. It can be next year, the year after that, or any other year inwhich we are interested. Let’s say that in the year just completed, a companyreported sales of 100 million, we estimate that revenues will grow at an 8%annual rate, and the net profit margin should be about 6%. Thus estimatedsales next year will equal 108 million ( 100 million 1.08). And, with a 6%profit margin, we should expect to see earnings next year ofFuture after-tax 108 million 0.06 6.5 million earnings next year Using this same process, we would then estimate sales and earnings for allother years in our forecast period.Forecasted Dividends and Prices At this point we have an idea of the futureearnings performance of the company. We are now ready to evaluate theeffects of this performance on returns to common stock investors. Given a corporate earnings forecast, we need three additional pieces of information: An estimate of future dividend payout ratios. The number of common shares that will be outstanding over the forecastperiod. A future price/earnings (P/E) ratio.For the first two, unless we have evidence to the contrary, we can simply project the firm’s recent experience into the future. Payout ratios are usually fairlystable, so there is little risk in using a recent average figure. (Or, if a companyfollows a fixed-dividend policy, we could use the latest dividend rate in ourforecast.) It is also generally safe to assume that the number of common sharesoutstanding will hold at the latest level or perhaps change at some moderaterate of increase (or decrease) that’s reflective of the past.Getting a Handle on the P/E Ratio The only really thorny issue in thiswhole process is coming up with an estimate of the future P/E ratio—a figurethat has considerable bearing on the stock’s future price behavior. Generallyspeaking, the P/E ratio is a function of several variables, including:1. The growth rate in earnings.2. The general state of the market.3. The amount of debt in a company’s capital structure.
--Gitman2002.CH08.314-368.CTP 7/19/01 12:20 PM Page 317CHAPTER 8ISTOCK VALUATION AND INVESTMENT DECISIONSI’ve Got a Secret: Whisper Forecastss a fiscal quarter ends, investors rush tocompare companies’ actual reported earnings with consensus (average) security analysts’estimates published by firms such as First Call,Zacks, and I/B/E/S. If a company falls below theanalysts’ figure by even a penny or two, its stockprice can tumble 30% or more in one day. Infact, Kiplinger’s magazine considers this comparison perhaps the most important factor drivingshare price performance over the short term,and it affects longer-term performance as well.Now investors have another set of earningsforecasts to follow. “Whisper forecasts” are unofficial earnings estimates that circulate amongtraders and investors. They are rumors ratherthan “official” (analysts’) estimates. Whispernumbers tend to be higher than analysts’ forecasts, and some market watchers believe theyare the analysts’ real earnings estimates.Until recently, only the wealthiest individualand institutional investors had access to thesuper-secret analysts’ forecasts. Now whispernumbers are widely available on the Internet.Data come from varied sources: from discussions with stockbrokers, from financial analysts,from investor relations departments, and frominvestors themselves. For example, WhisperNumber (www.whispernumber.com), founded in1998, combines information from investor forums with polling and daily computer searchesof hundreds of thousands of sources, includingmessage boards on Yahoo!, Silicon Investor,Motley Fool, Raging Bull, and America Online.Other Web sites dedicated to these unofficialearnings reports include Earnings Whispers(www.earningswhispers.com), Just Whispers(www.justwhispers.com), and The WhisperNumber (www.thewhispernumbers.com). Eachsite claims to have the “real” whisper numbers.(The “Frequently Asked Questions” pages atthese sites describe how each compiles its whisper earnings.)How valid are whisper earnings? WhisperNumbers claims that about 74% of the time, aAcompany that beats the whisper number will seeits stock rise within 5 days of its earningsannouncement, and those that fail to reach theirwhisper numbers will see their stock valuesdecline.A formal study by professors at Purdue andIndiana Universities compared average whisperforecasts and consensus analysts’ estimates(from First Call) for 127 mostly high-tech firmsfrom January 1995 to May 1997. The studytreated all whispers equally, making no judgments of the poster’s credibility. In addition, theyused whisper forecasts in several trading strategies. The results showed that whisper forecaststended to be more accurate than analysts’ estimates and also provided information not included in analysts’ forecasts. Because whisperforecasts are distributed widely, part of this information is reflected in stock prices before theactual earnings reports. Proponents of whisperforecasts claim that these forecasts also counteract the pessimistic bias of analysts, which derives from corporate pressure to keep estimateslow so that positive earnings surprises will bemore common than disappointments.Not everyone believes in whisper forecasts.Some in the industry criticize whisper numbersas rumors, unsubstantiated speculation, or idlegossip from unknown sources that lack accountability. Many observers question the ethics ofthe practice. Company insiders or short sellers,for example, could plant high numbers to manipulate prices. For this reason, you should usewhisper forecasts only in combination withother securities analysis techniques and tools.Sources: Mark Bagnoli, Messod Daniel Beneish, and SusanG. Watts, “Earnings Expectations: How Important Are theWhispers?” AAII Journal, June 2000, pp. 11–14; JustWhispers Web site, www.justwhispers.com; LynnetteKhalfani, “Psst! Get the Scoop on Whisper Numbers,”Wall Street Journal, January 12, 2001, p. C1; ManualSchiffros, “The Earnings Game,” Kiplinger’s, April 2000,pp. 60–62; and Whisper Numbers Web site, www.whispernumbers.com317
--Gitman2002.CH08.314-368.CTP 7/19/01 12:20 PM Page 318318PART THREEIINVESTING IN COMMON STOCK4. The current and projected rate of inflation.5. The level of dividends.relative P/E multiplea measure of how a stock’s P/Ebehaves relative to the averagemarket multiple.As a rule, higher P/E ratios can be expected with higher rates of growth inearnings, an optimistic market outlook, and lower debt levels (less debt meansless financial risk).The link between the inflation rate and P/E multiples is a bit more complex.Generally speaking, as inflation rates rise, so do bond interest rates. This, in turn,causes required returns on stocks to rise (in order for stock returns to remaincompetitive with bond returns) and higher required returns on stocks meanlower stock prices and lower P/E multiples. On the other hand, declining inflation (and interest) rates normally translate into higher P/E ratios and stock prices.We can also argue that a high P/E ratio should be expected with high dividendpayouts. In practice, however, most companies with high P/E ratios have lowdividend payouts. The reason: Earnings growth tends to be more valuable thandividends, especially in companies with high rates of return on equity.A useful starting point for evaluating the P/E ratio is the average marketmultiple, which is simply the average P/E ratio of stocks in the marketplace.The average market multiple indicates the general state of the market. It givesus an idea of how aggressively the market, in general, is pricing stocks. Otherthings being equal, the higher the P/E ratio, the more optimistic the market.Table 8.1 lists S&P price/earnings multiples for the past 30 years. It shows thatmarket multiples tend to move over a fairly wide range.With the market multiple as a benchmark, you can evaluate a stock’s P/Eperformance relative to the market. That is, you can calculate a relative P/Emultiple by dividing a stock’s P/E by the market multiple. For example, if astock currently has a P/E of 35 and the market multiple is 25, the stock’s relative P/E is 35/25 1.40. Looking at the relative P/E, you can quickly get afeel for how aggressively the stock has been priced in the market and whatkind of relative P/E is normal for the stock. Other things being equal, a highrelative P/E is desirable. The higher this measure, the higher the stock will bepriced in the market. But watch out for the downside: High relative P/E multiples can also mean lots of price volatility. (Similarly, we can use averageindustry multiples to get a feel for the kind of P/E multiples that are standardfor a given industry. We can then use that information, along with market multiples, to assess or project the P/E for a particular stock.)Now we can generate a forecast of what the stock’s future P/E will be overthe anticipated investment horizon (the period of time over which we expect tohold the stock). For example, with the existing P/E multiple as a base, anincrease might be justified if you believe the market multiple will increase (as themarket tone becomes more bullish), and the relative P/E is likely to increase also.Estimating Earnings per Share So far we’ve been able to come up with anestimate for the dividend payout ratio, the number of shares outstanding, andthe price/earnings multiple. We’re now ready to forecast the stock’s futureearnings per share (EPS), which can be done as follows:Equation 8.2Future after-taxearnings in year tEstimated EPS in year tNumber of shares of common stockoutstanding in year t
--Gitman2002.CH08.314-368.CTP 7/19/01 12:20 PM Page 319CHAPTER 8I319STOCK VALUATION AND INVESTMENT DECISIONSTABLE 8.1Average Market P/E Multiples 1971–2000YearMarket Multiples(Average S&P P/E Ratio)YearMarket Multiples(Average S&P P/E 26.222.821.317.017.420.723.932.333.428.5**Note: By May 2001, the average P/E ratio on the S&P 500 was down to about 23 timesearnings.Source: Average year-end multiples derived from various sources, including Standard & Poor’sIndex of 500 Stocks and its Statistical Service—Security Price Index Record. Listed P/Es are allyear-end (December) figures, except 2000, which is as of end of the third quarter.Equation 8.2 simply converts aggregate or total corporate earnings to aper-share basis, by relating company (forecasted) profits to the expectednumber of shares outstanding. Though this approach works quite effectively,some investors would rather bypass the projection of aggregate sales and earnings and instead, concentrate on earnings from a per-share basis right from thestart. That can be done by looking at the major forces that drive earnings pershare: ROE and book value. Quite simply, by employing these two variables,we can define earnings per share as follows:Equation 8.3EPS ROE Book value per shareThis formula will produce the same results as the standard EPS equationshown first in Chapter 6 (Equation 6.1) and then again in Chapter 7. Themajor advantage of this form of the equation is that it allows you to assess theextent to which EPS is influenced by the company’s book value and (especially)its ROE. As we saw in the previous chapter, ROE is a key financial measure,because it captures the amount of success the firm is having in managing itsassets, operations, and capital structure. And as we see here, ROE not only isimportant in defining overall corporate profitability but it also plays a crucialrole in defining a stock’s EPS.To produce an estimated EPS using Equation 8.3, you would go directlyto the two basic components of the formula and try to get a handle on theirfuture behavior. In particular, what kind of growth is expected in the firm’sbook value per share, and what’s likely to happen to the company’s ROE? Inthe vast majority of cases, ROE is really the driving force, so it’s important toproduce a good estimate of that variable. Investors often do that by breakingROE into its component parts—margin, turnover, and the equity multiplier(see Equation 7.13 in Chapter 7).
--Gitman2002.CH08.314-368.CTP 7/19/01 12:20 PM Page 320320PART THREEIINVESTING IN COMMON STOCKOnce you have projected ROE and book value per share, you can plugthese figures into Equation 8.3 to produce estimated EPS. The bottom line isthat, one way or another (using the approach reflected in Equation 8.2 or thatin Equation 8.3), you have to arrive at a forecasted EPS number that you arecomfortable with. When that’s been done, it’s a pretty simple matter to use theforecasted payout ratio to estimate dividends per share:Equation 8.4Estimated dividendsEstimated EPSEstimated per share in year tin year tpayout ratioThe last item is the future price of the stock, which can be determined asEquation 8.5Estimated share priceEstimated EPS Estimated P/E at end of year tin year tratioPulling It All Together We’ve seen the various components that go into ourestimates of future dividends and share prices. Now, to see how they all fittogether, let’s continue with the example we started above. Using the aggregatesales and earnings approach, if the company had 2 million shares of commonstock outstanding and that number was expected to hold in the future, thengiven the estimated earnings of 6.5 million that we computed earlier, the firmshould generate earnings per share (EPS) next year ofEstimated EPS 6.5 million 3.25 next year2 million This result, of course, would be equivalent to the firm having a projected ROEof, say, 15% and an estimated book value per share of 21.67. According toEquation 8.3, those conditions would also produce an estimated EPS of 3.25(i.e., 0.15 21.67). Using this EPS figure, along with an estimated payoutratio of 40%, we see that dividends per share next year should equalEstimated dividends 3.25 .40 1.30 per share next year If the firm adheres to a fixed-dividend policy, this estimate may have to beadjusted to reflect the level of dividends being paid. For example, if the companyhas been paying annual dividends at the rate of 1.25 per share and is expectedto continue doing so for the near future, then you would adjust estimated dividends accordingly (i.e., use 1.25/share). Finally, if it has been estimated that thestock should sell at 17.5 times earnings, then a share of stock in this companyshould be trading at a price of about 56.90 by the end of next year.Estimated share price 3.25 17.5 56.88 at the end of next year Actually, we are interested in the price of the stock at the end of our anticipated investment horizon. Thus the 56.90 figure would be appropriate if wehad a 1-year horizon. However, if we had a 3-year holding period, we wouldhave to extend the EPS figure for 2 more years and repeat our calculations with
--Gitman2002.CH08.314-368.CTP 7/19/01 12:20 PM Page 321CHAPTER 8I321STOCK VALUATION AND INVESTMENT DECISIONSthe new data. As we shall see, the estimated share price is important becauseit has embedded in it the capital gains portion of the stock’s total return.Developing an Estimate of Future BehaviorUsing information obtained from Universal Office Furnishings (UVRS), wecan illustrate the forecasting procedures we discussed above. Recall fromChapter 7 that an assessment of the economy and the office equipmentindustry was positive and that the company’s operating results and financialcondition looked strong, both historically and relative to industry standards.Because everything looks favorable for Universal, we decide to take a look atthe future prospects of the company and its stock. Assume we have chosen a3-year investment horizon, because we believe (from earlier studies of economic and industry factors) that the economy and the market for office equipment stocks will start running out of steam near the end of 2004 or early 2005.Table 8.2 provides selected historical financial data for the company. Theycover a 5-year period (ending with the latest fiscal year) and will provide thebasis for much of our forecast. The data reveal that, with one or two exceptions, the company has performed at a fairly steady pace and has been able tomaintain a very attractive rate of growth. Our economic analysis suggests thatthe economy is about to pick up, and our research (from Chapter 7) indicatesthat the industry and company are well situated to take advantage of theupswing. Therefore, we conclude that the rate of growth in sales should pickup dramatically from the abnormally low level of 2001, attaining a growthrate of over 20% in 2002—more in line with the firm’s 5-year average. Aftera modest amount of pent-up demand is worked off, the rate of growth in salesshould drop to about 19% in 2003 and to 15% in 2004.The essential elements of the financial forecast for 2002–2004 are provided in Table 8.3. Highlights of the key assumptions and the reasoningbehind them follow. Net profit margin. Various published industry and company reports suggest a comfortable improvement in earnings, so we decide to use a profitmargin of 8.0% in 2002 (up a bit from the latest margin of 7.2%recorded in 2001). We’re projecting even better profit margins (8.5%) in2003 and 2004, as some cost improvements start to take hold.TABLE 8.2Selected Historical Financial Data, Universal Office Furnishings1997Total assets (millions) 554.2Total asset turnover1.72 Net sales (millions) 953.2Annual rate of growthin sales*11.5%Net profit margin4.2%Payout ratio6.8%Price/earnings ratio13.5 Number of common sharesoutstanding (millions)77.71998199920002001 694.91.85 1,283.9 755.61.98 1,495.9 761.52.32 1,766.2 941.22.06 1,938.034.7%3.6%5.6%21.7 16.5%5.0%5.8%14.9 18.1%8.0%6.0%15.7 9.7%7.2%6.6%18.4 78.072.865.361.8*Annual rate of growth in sales Change in sales from one year to the next Level of sales inthe base (or earliest) years. For 1998, the annual rate of growth in sales equaled 34.7% (1998sales 1997 sales)/1997 sales ( 1,283.9 953.2)/ 953.2 0.3467.
--Gitman2002.CH08.314-368.CTP 7/19/01 12:20 PM Page 322322TABLE 8.3PART THREEIINVESTING IN COMMON STOCKSummary Forecast Statistics, Universal Office FurnishingsLatestActualFigures(Fiscal 2001)Annual rate of growth in salesNet sales (millions) Net profit margin Net after-tax earnings (millions) Common shares outstanding (millions) Earnings per share Payout ratio Dividends per shareEarnings per share P/E ratio Share price at year endAveragefor thePast 5 Years(1997–2001)9.7%18.1% 1,938.07.2% 139.761.8 2.266.6% 0.15 N/A*5.6 %N/A71.1N/A6.2% 0.08 2.2618.4 48 1 . 5 N/A16.8N / A Forecasted Figures200222% 2,364.4**8.0% 189.261.5 3.086.0% 0.18 3.0820 0 6 1 . 6 200319% 2,813.6**8.5 % 239.260.5 3.956.0 % 0.24 3.9519 7 5 . 0 0 200415% 3,235.6**8.5% 275.059.0 4.666.0% 0.28 4.6620 9 3 . 2 0 *N/A: Not applicable.**Forecasted sales figures: Sales from preceding year Growth rate in sales Growth in sales; then Growth in sales Sales frompreceding year Forecast sales for the year. For example, for 2002: 1,938.0 0.22 426.4 1938.0 2,364.4. Common shares outstanding. We believe the company will continue topursue its share buyback program, but at a substantially lower pace thanin the 1998–2001 period. From a current level of 61.8 million shares, weproject that the number of shares outstanding will drop to 61.5 million in2002, to 60.5 million in 2003, and to 59.5 million in 2004. Payout ratio. We assume that the dividend payout ratio will hold at asteady 6% of earnings, as it has for most of the recent past. P/E ratio. Primarily on the basis of expectations for improved growth inrevenues and earnings, we are projecting a P/E multiple that will rise fromits present level of 181 2 times earnings to roughly 20 times earnings in2002. Although this is a fairly conservative increase in the P/E, when it iscoupled with the hefty growth in EPS, the net effect will be a big jump inthe projected price of Universal stock.Table 8.3 also shows the sequence involved in arriving at forecasted dividends and price behavior:1. The company dimensions of the forecast are handled first. These includesales and revenue estimates, net profit margins, net earnings, and thenumber of shares of common stock outstanding. Note that after-taxearnings are derived according to the procedure described earlier in thischapter.2. Next we estimate earnings per share, following the procedures established earlier.3. The bottom line of the forecast is, of course, the returns in the form ofdividends and capital gains expected from a share of Universal stock,given that the assumptions about net sales, profit margins, earnings per
--Gitman2002.CH08.314-368.CTP 7/19/01 12:20 PM Page 323CHAPTER 8ISTOCK VALUATION AND INVESTMENT DECISIONS323share, and so forth hold up. We see in Table 8.3 that dividends shouldgo up to 28 cents a share, which is a big jump. Even so, with annual dividends of a little over a quarter a share, it’s clear that dividends stillwon’t account for much of the stock’s return. In fact, the dividend yieldin 2004 is projected to fall to just 3/10 of 1%. The returns from thisstock are going to come from capital gains, not dividend
merits of a share of stock is the underlying purpose of stock valuation.A stock's intrinsic value provides such a standard because it indicates the future risk and return performance of a security. The question of whether and to what extent a stock is under- or overvalued is resolved by comparing its cur-rent market price to its intrinsic value.
Classification makes it easier to understand where individual valuation models fit into the big . In the broadest possible terms, stock valuation methods fall into two main categories: absolute and relative valuation approaches. Absolute valuation attempts to find an intrinsic value of the stock based on company's fundamentals, such as .
Automated Valuation Models (AVMs) are computer-based systems which encompass all data concerning real estate in a particular area and are capable of producing more consistent valuation reports within a short time. Traditional valuation methods employed by valuers somewhat delay the valuation process. For
ing how well the estimates produced by exogenously imposed valuation models agree with stock prices. The problem is that the exogenously imposed valuation models, even if reasonable, are not the same as the actual models used by the . they use valuation methods that rely on trailing accounting information. Further-more, the adoption of .
John Wiley & Sons, Inc. C1.jpg. EQUITY ASSET VALUATION. . 1 Introduction to Free Cash Flows 108 2 FCFF and FCFE Valuation Approaches 109 . 11 Valuation Indicators and Investment Management 231 12 Summary 233 Problems 236. CHAPTER 5 Residual Income Valuation 243. Learning Outcomes 243
pre-money valuation. Post- money valuation is a simple sum-mation of the pre money and the investment made. E.g.- If the pre money valuation of a startup is 5 million and an invest-ment of 2.5 million is made. The post-money valuation would be 7.5 million. Thus, the new investor will own 2.5/7.5 33.33% of the company.
Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the . valuation and financial instrument analysis, as well as much more. . Introduction to Valuation 1 A Philosophical Basis for Valuation 1 Generalities about Valuation 2
disclosures and valuation methods that would be acceptable. The Guide established ground breaking best practices for valuation of private company common stock, i.e. "cheap stock" valuations. The result was a new standard applicable to independent valuations that were considered reasonable and supportable by the valuation community at large .
Anatomi Antebrachii a. Tulang ulna Menurut Hartanto (2013) ulna adalah tulang stabilisator pada lengan bawah, terletak medial dan merupakan tulang yang lebih panjang dari dua tulang lengan bawah. Ulna adalah tulang medial antebrachium. Ujung proksimal ulna besar dan disebut olecranon, struktur ini membentuk tonjolan siku. Corpus ulna mengecil dari atas ke bawah. 8 Gambar 2.1 Anatomi os Ulna .
